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The divided court ruling overturns a four decade old legal precedent.
Private citizens are blocked from suing a state in the courts of another state, the U.S. Supreme Court ruled Monday in a 5-4 decision that overturned one of the court’s own precedents.
Franchise Tax Board of California v. Hyatt is a case that stems from a roughly two-decade tax dispute between a man named Gilbert Hyatt and the board. The board concluded after an audit that Hyatt owed California more than $10 million in back taxes, interest and penalties.
At issue was when Hyatt had moved from California to Nevada and was no longer subject to California taxes. Hyatt sued the board in 1998 in a Nevada state court over alleged wrongdoing tied to the audit, claiming fraud, invasion of privacy and “abuse of process.”
This lawsuit has ignited years of legal controversy and the case has been to the Supreme Court twice before. This time around, the question before the court was whether to overrule its 1979 decision in Nevada v. Hall, which held that the Constitution does not bar lawsuits by individuals, against a state, in another state’s court system.
Instead, based on the earlier ruling, it was up to states to decide—as a matter of “comity”—whether to permit or deny immunity to their peer states in their courts.
With conservative justices in the majority, the Supreme Court on Monday scrapped that framework, ruling in favor of the tax board.
“Nevada v. Hall is contrary to our constitutional design and the understanding of sovereign immunity shared by the states that ratified the constitution,” said the court’s majority opinion in the Hyatt case, which was written by Justice Clarence Thomas.
“We therefore overrule Hall and hold that States retain their sovereign immunity from private suits brought in the courts of other States,” the opinion added.
The concept of “sovereign immunity” shields states against lawsuits in many, but not all, instances. It’s a protection derived in part from the 11th Amendment of the Constitution, but extends beyond the text of the amendment as well based on legal precedents.
Thomas’ opinion noted that Hyatt argued the court should “find no right to sovereign immunity in another State’s courts because no constitutional provision explicitly grants that immunity.”
But the ruling goes on to say that this is the type of “ahistorical literalism” that the court has rejected in the past when interpreting the scope of state sovereign immunity.
Chief Justice John Roberts and Justices Samuel Alito, Neil Gorsuch and Brett Kavanaugh joined Thomas in the majority.
Monday’s decision is in line with what a coalition of 44 states, the National Governors Association, and the National Conference of State Legislatures had hoped to see in the Hyatt case. In briefs filed with the court, they’d urged the justices to abandon the Hall precedent.
“Numerous suits brought against States in other States’ courts in the decades since Hall are an insult to state sovereignty,” the group of 44 states said in a brief filed in the Hyatt case, submitted by Indiana Attorney General Curtis Hill’s office.
This insult is particularly harmful in the tax context, which goes to the core of state police power,” the brief argued.
It noted that at least five other tax cases have been brought against one state in the court of another state, and that there are other cases in the same category outside of the tax arena.
A brief the governors and the Conference of State Legislatures signed onto argued that the precedent set by Hall “poses a real, ongoing threat to the sovereign right of states to make their own tax policy choices, to enforce their taxes, and to voluntarily cooperate with other states.”
“Its holding provides a means to circumvent and disrupt the administrative processes essential for tax enforcement,” the groups added. They also say that “where tax policies differ, Hall also allows a kind of forum-shopping to exploit those differences.”
Justice Stephen Breyer—joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan—wrote a dissenting opinion, in which he says he can find no good reason to overrule Hall.
Forcing states to grant immunity to one another risks interfering with rights the Constitution leaves to states, Breyer said. “When a citizen brings suit against one State in the courts of another, both States have strong sovereignty-based interests,” he added.
Breyer said that he could not find historical evidence to “suggest that the Constitution converted what had been the customary practice of extending immunity by consent into an absolute federal requirement that no state could withdraw.”
His dissent also raised sharply worded concerns about the court casting aside its past rulings.
“To overrule a sound decision like Hall is to encourage litigants to seek to overrule other cases,” Breyer wrote. “It is to cause the public to become increasingly uncertain about which cases the Court will overrule and which cases are here to stay.”
“The majority has surrendered to the temptation to overrule Hall even though it is a well-reasoned decision that has caused no serious practical problems,” he wrote. “Today’s decision can only cause one to wonder which cases the Court will overrule next.”
Steven Schwinn, a law professor at the John Marshall Law School, in Chicago, said it was not immediately clear to him how many cases this ruling will affect.
“But it has a much deeper significance in that it really telegraphs the court’s feelings about so-called states’ rights and state sovereign immunity,” he said.
Schwinn said that, in his view, the court’s position on state sovereign immunity “has gone far afield from the text of the Constitution.” This is a trend that has taken place not only under Roberts’ tenure, but also under his predecessor, Chief Justice William Rehnquist, he said.
“The Rehnquist court and the Roberts court have been continually sort of beating this drum of states’ rights, state sovereignty and in some ways this is just the latest manifestation,” he added. “But at the same time, it also is a meaningful extension of state sovereign immunity.”
Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.